Heat builds in Congress on use of bailout money

Rep. Henry Waxman, D.-Calif., chairman of the House oversight committee, smells a rat. Waxman sent letters this week to the nine largest U.S. banks receiving $125 billion from the government asking for data about compensation paid to their highest paid employees.

Waxman wants the information broken down by salaries, bonuses and benefits and a description of the reasons for the year-to-year changes in the amounts. The letter was sent to Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, State Street Corp. and Wells Fargo.

"While I understand the need to pay the salaries of employees," Waxman said in the letter, "I question the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses."

Following Waxman's letter, leaders from both parties expressed concern that the $700 billion bailout of the financial industry might be used to line the pockets of executives. In a letter to Treasury Secretary Henry Paulson, House Republican Leader John Boehner wrote, "Funds made available under the economic rescue package should not be used to pay for bank acquisitions, raises and executive bonuses."

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid also wrote a joint letter to Paulson "to express concern about the level of compensation" for executives at financial institutions receiving funds through the bailout.

Using the bailout money for bonuses is not the only red flag. Several news organizations have published stories saying that banks are planning to use the funding to buy other banks and pay dividends to shareholders. With $250 billion in bailout funds committed to dozens of large and regional banks, some of the recipients plan to use this money to buy other properties, rather than to make loans to help stimulate the economic downturn.

The New York Times' Joe Nocera reported on a conference call he had listened in on between employees and executives of J.P. Morgan Chase. Asked how an infusion of $25 billion of federal funds would change the bank's lending policy, an executive said the money would be used to buy other banks. "I think there are going to be some great opportunities for us to grow in this environment." He added that the money could also be used as a backstop in case "recession turns into depression or what happens in the future."

If the leaders of the banking institutions receiving bailout money plan to use those funds for salaries for their top executives or to buy out their competitors, then they surely don't understand the mood of the American people. There are jokes about getting the kind of carts -- "tumbrels" -- that were used in the French Revolution to carry the condemned to the guillotine; at least, we think they're jokes.

At the beginning of this crisis, it was revealed that even as the Lehman Brothers company was failing, the top executives' bank accounts grew fat. Days away from bankruptcy, the giant investment bank steered millions of dollars to its departing executives as the company pleaded for a federal rescue. Then came news that executives of AIG, the insurance giant bailed out by the taxpayers for $123 billion, spent $440,000 at the swanky St. Regis Resort and Spa in Monarch Beach, Calif. Their company had just been saved from ruin, but the CEOs were not sobered by the financial crisis; they were intent on continuing their lavish lifestyles at a level most Americans can't imagine.

This was not the best starting point for a sympathetic relationship between the taxpayers and the big banks' overpaid executives. But the relationship could go even rockier, especially if the bailout recipients see this infusion of billions of dollars of taxpayer money as just another windfall opportunity.

Treasury must establish strict guidelines; these taxpayer dollars need big, fat strings and sticky red tape. If Treasury won't do it, Congress must step in. One thing the "smartest guys in the room" should know: the American taxpayers are ready to roll out those tumbrels.